LA JOLLA, Calif. Private equity firm Pacific Corporate Group is separating its asset management and consulting businesses in an attempt to quiet investor qualms over potential conflicts of interest.
PCGs management also is beginning to spread ownership in its asset management business among top managers. Last month, the firm created a new subsidiary, Pacific Corporate Group Asset Management, and formed a separate board of directors to run it. Similar changes are expected for the consulting business, PCG Capital Partners, said Christopher J. Bower, PCG founder and majority owner of PCG Holdings, the parent of both the asset management and consulting units.
The initiative to separate the units comes months after seven top executives left between September and December in a second wave of defections. Those departures have prompted some PCG clients to conduct searches for private equity consultants. They include the Tigard, Ore.-based Oregon Investment Council, which oversees the $60 billion Oregon Public Employees Retirement Fund, Salem, and the $40 billion Illinois Teachers Retirement System, Springfield. PCG is among the finalists in both searches.
Both the $236.6 billion California Public Employees Retirement System, Sacramento, and the $150 billion New York State Common Retirement Fund, Albany, decided to stay with PCG after monitoring the situation.
But PCG officials said the changes were not related to the executive departures.
The (planned) changes have been longstanding, Mr. Bower said. We wanted to create a highly accountable, transparent firm.
But Mr. Bower, who is also chief executive officer of the consulting subsidiary, acknowledged that prior to the separation, the same people worked in both asset management and consulting.
Sources familiar with the situation said there was also some concern about a conflict between the asset management and consulting sides of the business. This new separation was designed to help erase the conflict, Mr. Bower said. He is the only executive working for both sides of the business.
Not a spinoff
While the company did not exactly spin off its asset management business as it initially announced on Feb. 21, it did create a dedicated board of directors, which is expected to choose a management structure at its first board meeting on March 5, Mr. Bower said.
This is not the first time PCG restructured. In 2005, the firm reorganized into two separate groups and created a board to run the parent company. The board was later disbanded.
Mr. Bower plans to spread the wealth in the new asset management firm among eight to 10 top managers at PCG Asset Management, he said in an interview with Pensions & Investments on Feb. 27. Within about four years, some 25% of stock grants in PCG Asset Management will be distributed among those top managers, he said. In another five years, another 25% could be distributed, depending on such factors as manager performance. The remainder will be owned by PCG Holdings.
New York State Common is sticking with PCG, said Dan Weiller, spokesman for State Comptroller Thomas P. DiNapoli.
Weve had a longstanding and successful relationship with PCG, Mr. Weiller said.
CalPERS officials also are satisfied with the changes. Following the executive departures, CalPERS officials met with PCG executives in a series of meetings, confirmed Clark McKinley, CalPERS spokesman.
We had concerns about the structure of PCG in the wake of staff departures, and expressed those concerns to PCG, Mr. McKinley said. We are very satisfied with the outcome.
PCG was retained as the funds private equity consultant, and last month, fund officials decided to make a separate clean technology co-investment with the firm, Mr. McKinley noted.
Oregon, meanwhile, is in the midst of a search for a new consultant. Fund officials said they are taking a wait-and-see approach after hearing the news of the new firm structure. (PCG and Hamilton Lane are the two finalists for the private equity consulting post. Selection is expected in April.)